The beneficiary designation is one of the most important parts of a life insurance application, and one of the easiest to get wrong. When minor children could end up receiving the death benefit, a few extra minutes of planning can save the family a costly court process.
Key takeaways
- Minors cannot legally receive life insurance proceeds directly, so a court-appointed guardian may be required if a child is named without a plan.
- A trust offers the most control over how and when children receive the money.
- A custodianship under the state’s Uniform Transfers to Minors Act (UTMA) is a simpler, low-cost alternative when a trust isn’t in place.
There should never be a contingency that results in an underage beneficiary receiving life insurance proceeds outright.
Why the beneficiary box is a trap
The beneficiary space on most applications is small. That encourages clients to keep their instructions short and tempts busy advisors to skip a fuller designation on a separate page. When children are involved, a short designation can create big problems.
Minors are not legally able to accept death proceeds. The age of majority varies by state. If a minor becomes the beneficiary, directly or as a contingent beneficiary, a guardian of the child’s property may need to be appointed through the courts, a process that takes time and money and may not put the person the insured would have chosen in charge.
Option 1: Name a trust
The strongest solution is to name a trust as beneficiary. The trustee holds and manages the proceeds for the children and distributes them according to the insured’s written instructions, whether that is paying for education, making staged distributions at certain ages, or holding funds longer for a child who needs more time.
The hurdle is getting the client to have a trust drafted, even when the size of the death benefit clearly justifies the cost. If the family has larger estate planning goals, an irrevocable or grantor trust may be worth discussing with their attorney.
Option 2: A UTMA custodianship designation
Nearly every state has adopted a version of the Uniform Transfers to Minors Act. It lets a beneficiary designation name a custodian to receive proceeds for the benefit of a minor, with no separate trust document required. Think of it as a basic trust created by state law.
There are trade-offs compared with a trust:
- The custodian’s duties are set by statute, which may be less flexible than the insured would like.
- The child receives the remaining funds at the age set by state law, often 18 or 21, which may be younger than the parents would prefer.
Not perfect, but far better than leaving the proceeds to a court-supervised guardianship.
Getting the wording right
UTMA designations can be tricky. Despite the word “uniform,” states differ in what they require, and carriers differ in the wording they will accept. Good practice includes:
- A separate, complete designation for each minor child
- Naming successor custodians in case the first choice cannot serve
- Using a separate sheet rather than squeezing instructions into the application box
- Confirming the carrier’s preferred language before submitting
Contact us for help drafting any ownership or beneficiary designation, especially one that creates a custodianship for a minor.
Frequently asked questions
Can a minor be the beneficiary of a life insurance policy?
A minor can be named, but cannot legally receive the proceeds directly. Without a trust or custodianship in place, a court may need to appoint a guardian to manage the money until the child reaches the age of majority.
What is a UTMA beneficiary designation?
It names a custodian to receive life insurance proceeds on behalf of a minor under the state’s Uniform Transfers to Minors Act. The custodian manages the funds under state law and turns them over to the child at the age the statute sets.
Is a trust better than a UTMA custodianship?
A trust usually offers more control over how and when children receive the money, while a UTMA custodianship is simpler and cheaper to set up. The right choice depends on the size of the benefit and the family’s goals.
Reviewed by Tim Fuller on 2026-09-26
Tim Fuller
President, SRS Inc.
Tim leads SRS Inc., a full-service IMO (Independent Marketing Organization) and BGA (Brokerage General Agency), connecting independent financial professionals with life, annuity, disability income, and long-term care solutions from 60+ carrier partners.
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